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High returns lure foreign investors into Indian property sector

Foreign money is pouring into Indian property funds as international investors chase potential returns of more than 20% from efforts to upgrade the countryâ€™s infrastructure.

A $5bn (â‚¬3.6bn) fund launched this year by Citigroup, Blackstone, Infrastructure Development Finance Company and the government-owned India Infrastructure Finance Company will close its first round of financing next month.

The Indian government estimates that in the next five years India will need $475bn to upgrade its infrastructure, with most of the cash likely to come from public-private partnerships. The opportunities and double-digit returns have drawn heavyweight foreign investors, including Calpers, the largest public pension fund in the US.

An estimated $10bn was raised globally last year for the Indian property sector by big investment banks, including JPMorgan, Citigroup, ING and Credit Suisse. Sahara, the Indian conglomerate, is trying to raise up to $7bn through London banks to start financing the building of 217 townships across India.

ICICI Bank, Indiaâ€™s largest private sector financial group, is to launch a $2bn infrastructure fund to invest in ports, power and aviation projects.

The ICICI fund would be managed by the bank with a tenure of at least 10 years and could tentatively be set up within three months. The bank plans to raise the money overseas, with Credit Suisse acting as an advisor.